Forex Trading Preview 12-28-2014

I’m a bit late getting my weekly preview post out. Sorry about that, it’s the holidays and all… 😉

 

The markets are also seemingly in the holiday spirit as things are quite quiet. That hasn’t stopped me from getting in the mix a bit though. My focus this week is on two main pairs: GBPJPY and GBPUSD.

Forex trading preview: GBPJPY

Very little has changed in GBPJPY since my last forex trading weekly preview. Price is still caught between our supply zone (the red zone) and the demand zone (the green one) below. Most notably, we traded up into the supply zone last night but the pair was slapped back down in the next 4-hour candle. With the 50 and 100-ema still trending up and now both trending above our demand zone, it seems like the threat is to further advances.

 

For this reason, I’m holding longs and looking for a target somewhere before the next supply zone. For more on supply and demand zones, see my post here. Here’s the 4-hour chart I’m trading from this week:

 

forex-trading-gbpjpy-chart

Forex trading preview: GBPUSD

I noticed an opportunity this week to short GBPUSD. The pair has been in a huge downtrend since July but recently took a pause and had been trading sideways since early November. Last week we finally broke the lows of this sideways range and came up to test that area as resistance. I saw this as a decent opportunity to get short as I feel there’s a good probability of us continuing lower again. Here’s a look at the 4-hour chart before we zoom into the 1-hour timeframe:

 

forex-trading-chart-gbpusd

 

My trade actually took place on the 1-hour timeframe, but I gauged the overall trend based on the 4-hour chart. As you can see below, my entry (the yellow, horizontal line) was at 1.5560 — admittedly, this could have been better had I been more patient (something I’m still working on). I set my stop at 1.5595, risking a total of 35 pips.

 

Now, here’s where I’m trying something new. Rather than setting one target for my entire trade, I’ve decided to break my trade into four equal chunks. In this instance, I shorted four positions, each of 3,000 (the equivalent of 0.30 mini lots) for a total of 12,000 (or 1.2 minis). Doing this allows me to set multiple price targets, and in doing so hopefully allows me to limit my risk while increasing consistency.

 

forex-trading-gbpusd-1hour

 

In this case, you can see that my first target of 1.5520 was reached this morning. That means I’ve banked 40 pips on the first 3,000 tranche of my trade and I’m now holding 9,000 with a stop still in place at 1.5595 — in other words, my risk has been diminished. In other words, my original risk was 35 pips x $1.20, or $42. However, I now only have a risk of 35 pips x $0.90, or $31.50, but once you subtract out my $12 that I’ve now banked on my first tranche, I’m only risking $19.50 now. But here’s the kicker… my potential reward now is a total of $81.00 if I were to hit my targets on my remaining three tranches. That leaves me with a reward/risk ratio of more than 4.15!

 

That’s an incredible reward/risk ratio, and I’d be a fool to put the remainder of the trade in danger of being stopped out by moving my stop loss in an effort to protect gains. This is a very disciplined, more structured way of trading, but my reflecting and reading over the last week has convinced me this is what I need to do to remain consistent over the long haul.

 

I will be making an effort to approach my forex trading from this perspective going forward and I’d love to hear your thoughts on it.

Geppy

I've been involved in the forex markets for over a decade, initially starting as an FX trader at Allston Trading in Chicago. Eventually I went on and founded my own (non trading related) company. I spend my days working from home and trading forex, equity, and crypto markets.

2 thoughts on “Forex Trading Preview 12-28-2014

  1. I tired to short GJ unsuccessfully 4 times last week and now I know why – t’s in an uptrend. Try swimming upstream…

    1. Hi Sylvia,

      The overall trend in GBPJPY is definitely up, however, we’re currently stuck in a larger consolidation range. Combine that with the lower liquidity during the holidays, and it makes for some choppy trading for sure!

      Better luck this week, I hope.

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